Chevron (CVX) and ConocoPhillips (COP) are among the oldest U.S.-based energy titans. Chevron is based on San Ramon, California, ConocoPhillips is based in Houston, Texas. Both companies engage in petroleum operations, chemicals operations, mining operations, power generation, and energy services. Their operations consist of exploring for, developing and producing crude oil and natural gas; transporting crude oil by international oil export pipelines; transporting, storage and marketing of natural gas, and a gas-to-liquids project. Chevron's market cap of $208.80 billion is two times higher than that of ConocoPhillips' [$102.76 billion].
Here, is a brief analysis of Chevron and ConocoPhillips (data from Finviz):
Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. The Upstream segment involves the exploration, development, and production of crude oil and natural gas. The Downstream segment engages in the refining of crude oil into petroleum products. Market cap is $208.80 billion. The current dividend yield of 3.04% is one of the best in the industry.
The company's past five-year EPS growth rate has been 7.69%, while analysts estimate a reasonable annualized EPS growth of 7.33% for the next five-year period. Trailing P/E ratio is 9.96, while the forward P/E falls to 7.93. Chevron supports a low beta of 0.76.
Insiders own 0.01% of the company, and they increased their holdings by 5.23% in the last six months. The company's debt to equity ratio of 0.11 signals Chevron has a negligible amount of debt on its balance sheet. On May 2, UBS reiterated its buy rating with an updated target price of $127, implying 25% upside potential in the intermediate-term.
ConocoPhillips explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids on a worldwide basis. The company also operates in the chemical segment. Its chemicals segment manufactures and markets petrochemicals and plastics.
The company's market cap is $102.63 billion. ConocoPhillips’s current dividend yield of 3.64% is higher than Chevron’s. COP's trailing five year EPS growth was a disappointing -4.57%. However, quarterly earnings are up by 50%, and analysts estimate a 5-year EPS growth of 6.55%. The company's trailing P/E ratio is 8.74, while the forward P/E falls to 8.18. With a beta of 1.16, COP is more volatile than Chevron.
Insiders own 0.04% of the company, and they decreased their holdings by -12.40% in the last six months. Net profit margins stand at 5.85%, and ROE is 18.50%. In the last quarter, sales increased by 27.28%. On April 28, Deutsche Bank downgraded ConocoPhillips with a target price of $85.
Historical Comparison (Data from Morningstar)
2007 | 2008 | 2009 | 2010 | TTM | ||
P/E | CVX | 10.6 | 6.3 | 14.7 | 9.6 | 10.1 |
COP | 12.2 | -4.6 | 15.8 | 8.9 | 8.7 | |
P/B | CVX | 2.5 | 1.7 | 1.7 | 1.7 | 1.9 |
COP | 1.5 | 1.4 | 1.2 | 1.5 | 1.5 | |
P/S | CVX | 0.9 | 0.6 | 0.9 | 0.9 | 1.0 |
COP | 0.7 | 0.3 | 0.5 | 0.5 | 0.5 | |
P/CF | CVX | 8.0 | 5.1 | 7.9 | 5.8 | 6.2 |
COP | 5.9 | 3.5 | 6.1 | 6.0 | 6.7 | |
Dividend Yield | CVX | 2.42% | 3.42% | 3.45% | 3.11% | 3.04% |
COP | 1.86% | 3.63% | 3.74% | 3.16% | 3.64% | |
Gross Margin | CVX | 31.39% | 29.17% | 41.94% | 43.17% | 42.64% |
COP | 31.05% | 26.69% | 26.22% | 26.31% | 25.48% | |
Net Margin | CVX | 8.46% | 8.77% | 6.11% | 9.28% | 9.53% |
COP | 6.11% | -6.90% | 3.18% | 5.72% | 5.82% |
When we analyze data for the past four years, it is obvious that fundamental ratios of Chevron are more stable than that of ConocoPhillips Company. P/E ratios show that ConocoPhillips was deeply affected by the last global crisis. Chevron was also affected by the financial crisis but its damage was far less than ConocoPhillips. While Chevron’s P/E ratio reduced from 10.6 to 6.3, ConocoPhillips’s P/E ratio reduced from 12.2 to -4.6.
Chevron's gross profit margins are about 43%, ttm (trailing twelve month) though net profit margins have fallen to 9.53%. We can see similar resultst for ConocoPhillips.
While ConocoPhillips's gross profit margins hover around 26%, ttm net profit margin fell to 5.82%. Moreover, when we compared the margins between 2007 and 2010, we can see that Chevron has an overall better performance in terms of profitability.
Summary
Both companies are doing business in energy, which I believe will continue to be a profitable business for a long period of time. It is really hard to make a choice between the two. However, Chevron Corporation has a higher market cap with $208.80 billion and its stock has more of a margin of safety than ConocoPhillips'.
CVX's P/E ratio has been more stable than that of ConocoPhillips’. Morningstar suggests a 5-year net annualized return (including dividends) of 5.57% for COP, and 14.57% for Chevron.
Analysts estimate an average 5-year EPS growth of 6.55% for COP, and 7.33% for Chevron. Both companies' metrics look very similar. However, COP underperformed CVX for the last 5 years, and the company has a relatively higher sebt/wquity ratio of 0.33. While I believe ConocoPhillips could be a good pick for a diversified retirement portfolio, Chevron is a dividend pick for the next 5 years, thanks to its higher T-Metrix score. Note that both companies are up by 40% since September, so it might be better to wait for a pull-back before diving in.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
